Income Tax Officer vs Kishan Chand Kohli.
1992 Latest Caselaw 649 Del

ORDER

M. A. BAKSHI, J. M. :

The appeal of the Revenue is directed against the order dt. 15th April, 1986 of CIT(A), Agra. Two grounds have been raised. One is in regard to the addition of Rs. 4,65,598 made on account of unexplained jewellery seized from the premises of the assessed and second against the deletion of the addition of Rs. 1,52,417 made by the Assessing Officer on account of diamond jewellery found at the time of survey not recorded in the books of accounts. Briefly stating the facts, assessed, who is an individual, was a partner in M/s. Punjabi Jewellers, Agra with his brother Shri Prem Nath Kohli. The said firm was dissolved on 30th Dec., 1981. On 5th Jan., 1982, assessed started the business as a proprietor of M/s. Pradeep Jewellers. On 30th June, 1982, some officers of the IT Department visited the business premises of M/s. Pradeep Jewellers, Namak ki Mandi, Agra and certain books of accounts, diaries and loose papers impounded. At the time of survey the stocks of gold and diamond jewellery worth Rs. 6,18,015 (gold jewellery Rs. 4,65,598, diamond jewellery Rs. 1,52,417) were found. When asked to explain as to the ownership of the jewellery found in the business premises, assessed claimed that it belonged to customers, who gave their old ornaments for repairs or/and redesigning. assessed further explained that he was doing job works through two certified goldsmiths, namely, Shri Bishamber Dayal and Shri Ramesh Chand. It was claimed that the registers GS-13 prescribed by Central Excise and Gold Control, Rules, had been maintained and the stock found was duly recorded in the said registers. Assessing Officer rejected the explanation of the assessed for the following reasons :

(i) No order book indicating the nature of orders was maintained.

(ii) The registers in name of two goldsmiths in prescribed form GS 13 were written in the handwriting of the assessed himself and did not contain full addresses of the persons from whom the ornaments were alleged to have been received.

(iii) No identification tags were attached to the ornaments.

(iv) Some of the so called customers had not bothered to collect these ornaments even for more than 5-6 months which is extremely unlikely.

(v) Inspite of reasonable opportunity the assessed did not produce even a single person out of those whose names were recorded in GS-13 register though during the course of statement the assessed claimed that he could produce all. The ITO took the view that the production of two certified goldsmiths is beside the points, in the absence of production of persons to whom the jewellery belongs.

(vi) The assessed claimed that after 30th June, 1982 the jewellery has been returned to the owners but still complete addresses of the persons were not recorded on the delivery vouchers. As a prudent businessman the assessed could have anticipated the contingency that he may have to furnish the addresses of these parties at the time of assessment.

(vii) Vide order-sheet entry dt. 27th Jan., 1986 the assessed expressed his inability to furnish the full addresses of the persons alleged to be the owners of the jewellery. In absence of complete addresses summons could not be issued to these persons.

Looking to the totality of the facts and circumstances of the case, Assessing Officer held the assessed as owner of the gold jewellery and further held that the explanation offered by the assessed not being satisfactory, the value of jewellery at Rs. 4,65,598 would represent the concealed income of the assessed. CIT(A) has found fault with the findings of the Assessing Officer and has deleted the addition for the following reasons :

2. That assessed had separated from the family firm M/s. Punjabi Jewellers about 6 months back and was in the process of starting his own business. That, however, as he could not get the license from the Gold Control Authority immediately he was working through two certified goldsmiths. The certificates issued in the name of Shri Ramesh Chand and Shri Bishamber Dayal, the registered goldsmiths Along with their photographs established the fact that they were licensed goldsmith during this year. That affidavit of the registered goldsmiths had also been filed to support the assertion of the assessed that they were working for him and that the prescribed registers under Gold Control Rules, namely, GS-13 had been maintained in the prescribed form. That Superintendent, Central Excise Division, Agra had also certified that the two registered goldsmiths were required to maintain GS-13 registers and that they had not been penalised till 22nd Aug., 1986 i.e., the date of issue of certificate for any violation of Gold Control Act, 1968. That another certificate issued by the Superintendent, Central Excise (Technical) establishes the fact that assessed had been subsequently issued a gold dealers license and that he had never been convicted under the Customs Act, 1962 or under Gold Control Act for committing any offence nor was any case pending against him under the said Act. That till the license was issued by the Addl. Collector, Central Excise on 6th July, 1982 the assessed had no option but to work through licensed goldsmiths as it was his traditional family business.

3. The CIT(A) has further laid stress on the fact that on 13th June, 1982, jewellery and papers had been seized from a different address, namely, Namak-ki-Mandi, Agra, Shop 29/86 which actually belongs to Shri V. K. Bansal. assessed had been allotted a new shop at 14/69, Hospital Road, Agra, which had opened w.e.f. 1st July, 1982.

4. assessed, according to the CIT(A), had maintained GS-13 registers and delivery vouchers in the normal course of business. CIT(A) has further recorded a finding that the delivery vouchers contained the name and address of the customers, description of the new ornaments, gross weight, net weight, old ornaments received, labour charges etc. According to him, there is declaration of the customer also certifying that the customers had received the new ornaments made from old ornaments. The chain of events, according to the CIT(A), namely, the partition of the family business in December, 1981, carrying on of business through two registered goldsmiths at the premises belonging to a friend and subsequent license received by the assessed in July, 1982 and opening of the new shop at the new business premises on 1st July, 1982 all go to show that assessed has been carrying on the business in the normal course and according to the special law applicable to the gold jewellery business. CIT(A) was also of the view that no discrepency or irregularity had been found in GS-13 registers and that the details of ornaments etc. were contained in the registers and the vouchers. Regarding the claim of the assessed that the stocks found contained tags giving details (which explanation has been rejected by the Assessing Officer is incorrect), the learned CIT(A) has observed how assessed could have returned the jewellery to the rightful owners in the month of July to September, 1982 when the books of accounts had been seized by the Department. Since the details in the delivery vouchers issued by the assessed and the books of account including GS-13 registers were in the custody of the Department tallied with the details recorded in GS 13 registers, CIT(A) has accepted the claim of the assessed that the tags containing the details of the customers were attached to each item and that the goods belonging to such customers were returned to them subsequently. The addition of Rs. 4,65,598 has thus been deleted.

5. Revenue is aggrieved. Shri V. K. Sinha, the learned Departmental Representative produced the seized records before us in order to establish that the findings recorded by the CIT(A) were factually incorrect. According to Shri Sinha, GS-13 registers had not been maintained in accordance with law as no address whatsoever of the customers was recorded in these registers though assessed was required to give the same. The said registers had not been allegedly maintained by the registered goldsmiths but had been maintained by the assessed himself and had not been signed by any authority under the Gold Control Act. The fact that assessed had not started the business in his own premises, according to Shri Sinha, does not carry any weight as at no stage assessed claimed that ornaments/jewelry to belong to the actual owner of the shop. assesseds case has always been that the jewellery and ornaments found at the premises belonged to his customers and not to the customers of the actual owner of the shop. assessed had not produced any customer though required by the Assessing Officer, at any stage. In fact the learned Departmental Representative pointed out that assessed had refused to produce the customers and to give complete address though he had agreed to supply the same at the time the survey was made.

6. Shri Sinha strongly contested the finding of the CIT(A) that the tags were attached to each item of jewelry/ornaments. It was pointed out by the learned Department Representative that the learned CIT(A) has overlooked a very important fact that the survey had been undertaken on 30th June, 1982 and on 3rd July, 1982 assessed had made a request either to return the books of accounts or inspection be allowed to the assessed. The inspection had been allowed on 6th July, 1982 which fact is confirmed from the application of the assessed placed at page 2 of the paper book filed by the Revenue and the nothings on it. According to the learned Departmental Representative assessed has got the details of the ornaments on the basis of inspection of the books of accounts from which the delivery notes have conveniently been prepared by the assessed. assessed has not given complete address of the customers in the so-called delivery notes notwithstanding the fact that he was conscious of the fact that such addresses was required to be maintained and furnished under the law. It was accordingly pleaded that the decision of the CIT(A) may be reversed.

7. The learned counsel for the assessed, on the other hand, supported the order of the CIT(A). It was further contended that for invoking S. 69A Department has failed to establish that assessed was the owner of ornaments/jewelry and that a proper opportunity to explain the source was not allowed to the assessed.

8. We have given our careful consideration to the rival contentions. In our view, the learned CIT(A) has erred in recording findings of fat in the appellate order. The fact that assessed was a partner in a firm with his brother till December, 1981 is not in dispute. The fact that assessed had started a new business independently w.e.f. 5th Jan., 1982 in the name of M/s. Pradeep Jewellers is also not in dispute. The stocks worth Rs. 4,65,598 in the form of gold jewelry/ornaments were found at the premises at which assessed was carrying on his business (we are dealing with the diamond jewellery of Rs. 1,52,417 separately). The GS-13 register was also found from the premises of the assessed. The statement of the two registered goldsmiths has also been recorded. Affidavits had also been furnished by them. assesseds claim is that he was doing job work for his customers and that the jewelry/ornaments found from his possession belonged to the said customers. First question for our consideration is as to whether, on the basis of evidence on record the explanation of the assessed can be accepted. First we deal with the evidence furnished by the two registered goldsmiths. According to them, they were doing job work for the assessed and that the GS-13 registers were not maintained by them but by the assessed. It is undisputed fact that though the two registered goldsmiths were registered with the Gold Control Authorities they had allowed the assessed to misuse the license. That apart the statement of these goldsmiths establishes only one fact i.e., these two persons were carrying the job work for the assessed and not necessarily for the customers of the assessed. assessed had been in business with his brother as a registered dealer and not as a registered goldsmith. A registered gold dealer is allowed to deal in gold ornaments and jewellery whereas a registered goldsmith allowed to do the job work for others. Whether the assessed was doing the business as a dealer or as a goldsmith is a question which cannot be answered either in favor or against the assessed on the basis of evidence furnished by the two registered goldsmiths. Therefore, in our view, the evidence of the goldsmiths does not establish the case of the assessed.

9. Another aspect considered by the CIT(A) is with regard to non violation of provisions of Gold Control Act by the assessed or by the registered goldsmiths. In this connection, CIT(A) has placed reliance on the certificates issued by the Gold Control Authorities. We would like to point out that assessed had contravened the provisions of Gold Control Act in any case in so far as he was neither a licensed dealer nor a licensed goldsmith. He was, therefore, not authorised either to deal in gold ornaments or jewellery or to undertake the job work of the said items. Regarding the maintenance of GS-13 registers, these were supposed to be maintained by the registered goldsmiths. It is undisputed fact that the registered goldsmiths did not maintain the register and it was the assessed who recorded entries in these registers belonging to the other persons. Firstly, the maintenance of the registers which the goldsmiths are supposed to maintain is of no consequence. Secondly, on closed scrutiny it is observed that assessed has not recorded any address of the customers in GS-13 registers. As per the prescribed form assessed is supposed to maintain the registers strictly in accordance with rules. In this connection we may quote S. 100 of the Gold Control Act, 1968 as under :

"100. Precautions to be taken by a licensed dealer, refiner or certified goldsmith before acquiring any gold -

(1) Every licensed dealer or refiner or certified goldsmith, as the case may be, shall, before accepting, buying or otherwise receiving any gold from any person, take such steps as are specified by the Central Government by rules made in this behalf, to satisfy himself as to the identity of the person from whom such gold is proposed to be accepted, bought or otherwise received by him.

(2) If on an enquiry made by a Gold Control Officer the person from whom a licensed dealer or refiner or certified goldsmith is purported to have accepted, bought or otherwise received any gold is not found at the address mentioned by the licensed dealer, refiner or certified goldsmith or at any other address ascertained from the first mentioned address, the Gold Control Officer may call upon such dealer, refiner or certified goldsmith, as the case may be, to establish that he had taken the steps specified by the rules made under sub-s. (1).

(3) If such dealer, refiner or certified goldsmith, as the case may be, omits or fails, when called upon so to do, to establish that he had taken steps specified by rules made under sub-s. (1), it shall be presumed refiner or until the contrary is proved, that such gold was accepted, bought or otherwise received by such dealer, refiner or certified goldsmith, as the case may be, in contravention of the provisions of this Act.

(4) Nothing in this section shall apply to the acceptance, purchase or other receipt by way of petty transactions, in the course of a day, of gold up to a quantity of one hundred grammes by a licensed dealer or refiner or certified goldsmith, as the case may be."

The above quoted section as well as the prescribed form of the register require giving complete address of the customers. assessed not having given any address not to speak of complete address, of the so called customers, in GS-13 register cannot be said to have maintained the registers in accordance with the gold Control Act, 1968 and the Rules. The mere fact that the licensed goldsmiths had not been penalised for violation of any Gold Control Act is not decisive in this case in view of the fact that the registers had never been inspected by the Customs Authorities. (We are referring to the registers which were found from the premises of the assessed).

10. With regard to the finding of the CIT(A) that the ornaments contained the tags giving details of the customers and the items, is also not well founded. The CIT(A) has ignored the fact that assessed had inspected the records on 6th July, 1982 i.e., immediately after the seizure of books of accounts. Therefore, the preparation of vouchers giving details of ornaments returned to the customers totaling with the details contained in the books of account is not a circumstance to establish that the items found from the premises of the assessed contained tags giving details of the ornaments and the names of the persons to whom these belonged. CIT(A) has also failed to appreciate that at no stage did assessed furnish any evidence to establish that the ornaments/jewelry found from the premises belonged to the customers. Revenue would thus be justified in presuming the ownership of such assets in the name of the assessed. Therefore, the finding of the Assessing Officer that the ornaments/jewelry belonged to the assessed was, in out view, justified.

11. The question, however, still remains as to whether addition under S. 69A is warranted on the basis of assessed having been found to be the owner of ornaments/jewelry. In this connection we may reproduce S. 69A as under :

"69A. Where in any financial year the assessed is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessed offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable articles, or the explanation offered by him is not, in the opinion of the ITO, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessed for such financial year."

A simple reading of this section indicates that two conditions must be satisfied before this section can be invoked. Firstly, assessed must be found to be owner of any jewellery or other valuable articles. And the second condition on the fulfillment of which S. 69A gets attracted is that the explanation offered by the assessed in the opinion of the Assessing Officer may not be satisfactory. In this case, assessed had been confronted about the ownership of the jewellery found from the premises. assessed had given explanation about the ownership of the ornaments which was not found to be acceptable by the Assessing Officer. In that case one condition provided under S. 69A gets satisfied i.e., the assessed is found to be owner of the jewellery and other valuables. With regard to the second condition we find that assessed has never been asked to explain the source of acquisition of the jewelry/valuable article. It could be argued on behalf of the Revenue that assessed having explained the source of ornaments as belonging to the customers not having been proved, both the conditions under S. 69A could be said to be satisfied simultaneously. We are afraid that this contention cannot be accepted. Principles of natural, justice demand that assessed is given an opportunity to explain the source of acquisition of the jewellery after being confronted that he is held to be the owner of the jewelry/other valuable articles. Assessing Officer having proceeded without requiring the assessed to explain the source of acquisition of jewelry/ornaments, in our view, it would be reasonable to remit back the issue to his file so that proper opportunity is allowed to the assessed to explain the source of acquisition of the jewellery. We may point out that assessed had retired from a firm in which he was a partner. It is on record that assets nearly Rs. 1 lakh had been withdrawn by him from that firm. In addition to that assessed has stated that he made some investment in the business which too has neither been claimed nor considered perhaps assessed being under the impression that his explanation regarding the ownership of assets would be accepted. Considering the facts and circumstances of this case, we set aside the order of the CIT(A). The finding of the Assessing Officer that assessed is the owner of the jewellery in the absence of any evidence to the contrary is upheld. We restore the issue to the file of the Assessing Officer and direct him to continue the proceedings from the stage of requiring the assessed to explain the source of acquisition of the ornaments/jewelry, and finalise the proceedings in accordance with law.

12. We now consider the next issue relating to investment in diamond jewellery. assessed claimed the diamond jewellery to have been received on approval from M/s. Gokul Das & Co., Malibara, Chandni Chowk, New Delhi. This was stated at the time of survey also. Assessing Officer recorded the statement of one of the partners of M/s. Gokul Das & Co. who had admitted to have supplied diamond jewellery to the assessed on approval. Assessing Officer has not accepted the explanation of the assessed as according to him it is afterthought. The CIT(A) has deleted the addition. Considering the rival contentions, we are satisfied that the addition made by the Assessing Officer on account of diamond jewellery is not warranted. It is on record that assessed had opened the new showroom on 1st July, 1982. As such getting some diamond jewellery for display could not be ruled out. assessed on the date of survey itself had given the name of the dealer as M/s. Gokul Das & Co. and after only two days later the confirmation had also been furnished. The statement of the assessed had been corroborated by Shri Krishna Kumar, a partner of M/s. Gokul Das & Co. as also by the fact that goods worth Rs. 71,580 had been purchased from them by the assessed and the balance item returned. Payments had been made to the party by means of crossed cheques. The chain of events also establish that assessed was in need of having some diamond jewellery on the occasion of opening ceremony of the shop. Considering the fact that the explanation of the assessed was corroborated, Revenue in our view, was not justified in rejecting the explanation. The burden in any case having shifted to the Revenue which in our considered opinion has not been discharged. The CIT(A) was thus justified in deleting the addition of Rs. 1,52,417.

13. Appeal of the Revenue is partly allowed.